New Delhi: US federal authorities have agreed to withdraw a motion they have filed against Ranbaxy Laboratories Ltd, which alleges the drug maker did not follow manufacturing standards and fabricated data made in regulatory filings, the Indian firm claimed in a response filedon Monday at the district court of Maryland.
Deal’s on: A file photo of Ranbaxy Labs’ Malvinder Singh (left) and Daiichi Sankyo’s Takashi Shoda. On Tuesday, Ranbaxy approved issuance of 46.26 million shares to Daiichi at Rs732 a share
“The government has agreed to withdraw the motion once production (of documents) is complete,” Ranbaxy said in its response filed in court, referring to providing the government investigators access to audits, documents and workpapers that its adviser Parexel Consulting had prepared while examining the company’s manufacturing sites in India. The documents, added the response, can be produced ina month.
This could not be independently verified from US prosecutors, who filed the motion asking for access to documents of Ranbaxy Inc., the main subsidiary of the Indian company in the US, on 3 July. There was no response to an email sent to Vickie E. LeDuc, a spokeswoman at the Maryland offices of the US department of justice (DoJ), when this edition went to press late Tuesday night.
Despite the indication that the legal motion—the probe has not reached prosecution stage yet—did not look like it would escalate the risk to Ranbaxy and with the company denying any wrongdoing in its response, investors continued to be jittery for the second day in a row. Shares of the Gurgaon-based drug maker plummeted on Tuesday by 14.01% to close at Rs409.25 a share on the Bombay Stock Exchange on a day the exchange’s benchmark index, the Sensex, slipped 4.9%. Since Monday—the news of the US case surfaced on Saturday—the shares have shed nearly one-quarter in value and eroded the firm’s market capitalization by at least Rs4,500 crore.
In an unrelated development, at an extraordinary general meeting held on Tuesday, Ranbaxy unanimously approved issuance of 46.26 million shares on a preferential basis to Daiichi Sankyo Co. Ltd at a premium of Rs732 each and 23.83 million warrants that can be exercised between six months and 19 months at the same price. The resolution also permitted the remuneration of Ranbaxy’s chief executive Malvinder Singh to be set at up to Rs25 crore yearly.
Monday’s response also indicates that Ranbaxy had agreed to grant US investigators access to the documents they wanted after it became clear they were going to file a motion asking for such access. “On July 3, within half an hour of the first call from the government counsel informing Ranbaxy of the motion to compel”, Ranbaxy decided to “waive privilege for the remaining audits. At the time the motion was filed, it was moot”, the Indian firm said in its response, asserting that the company had fully cooperated with the US food and drug administration and DoJ.
A Mumbai-based analyst sees no respite in mere withdrawal of this motion by the US government. “Investigations will continue even if the motion is withdrawn. We don’t know what the probe will end up finding, based on which, charges will be filed or not,” said Prashant Vaishampayan, sector analyst with Kotak Securities Ltd, who has a “reduce” rating on the stock as he expects it to underperform the Sensex. “The scope of investigations is far bigger than what people were believing it to be in the past.”
The court papers say the US government is “investigating Ranbaxy and some of its employees considering possible violations of federal laws..., including the Federal Food, Drug, and Cosmetic Act...” and believes that these “violations have resulted and continue to result in the introduction of adulterated and misbranded products...”
In September 2007, DoJ asked the company for all the Parexel audits and the underlying paperwork—requests that Ranbaxy argued against because it considered them “bad policy”, the company’s response said.
Federal prosecutors, in their Maryland court filing, had alleged that the Indian drug maker and its adviser Parexel had indulged in “systemic fraudulent conduct”, “conspiracy”,“false statement” and “health care fraud”.